A month has gone by since the last earnings report for TransUnion (TRU - Free Report) . Shares have lost about 5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TransUnion due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
TransUnion Q3 Earnings Surpass Estimates, '18 View Up
TransUnion reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings per share (EPS) of 65 cents outpaced the consensus mark by 2 cents and improved 33% year over year. Lower tax rate, resulting from Tax Cuts and Jobs Act, aided the company’s earnings in the reported quarter.
Total revenues came in at $604 million, which missed the consensus mark by $13 million. However, the top line was up 21% on a reported basis and 22% in terms of constant currency. This uptick can be attributed to solid double-digit growth in each of its operating segments — U.S. Information Services (USIS), International and Consumer Interactive — and contributions from incremental credit monitoring business from a competitor.
Adjusted revenues (excluding the impact of deferred revenue purchase, accounting reductions and other adjustments to revenue for the company’s recently acquired entities) came in at $621 million, up 25% year over year on a reported basis, 26% on a constant-currency basis and 11% on an organic constant-currency basis. Acquisitions of DataLink services, FactorTrust, eBureau, iovation, HPS and Callcredit drove adjusted revenues.
We expect TransUnion to continue benefiting from a strong business model, focus on innovation diversified revenue streams, significant operating leverage, low capital requirements, and solid and stable cash flows.
Operating Segments’ Revenues
The U.S. Information Services (USIS) revenues of $375 million increased 20% year over year on a reported basis and 11% on an organic basis, courtesy of solid performance across all the three platforms within the segment. USIS adjusted revenues amounted to $376 million. Within the segment, Online Data Services, Marketing Services and Decision Services’ revenues of $235 million, $60 million and $80 million were up 17%, 23% and 26%, respectively, on a year-over-year basis. Online Data Services and Decision Services’ revenues increased 11% and 3%, respectively, on an organic basis. Decision Services adjusted revenues totaled $81 million.
International revenues surged 36% year over year on a reported and 42% constant-currency basis to $129 million, driven by strength in both developed and emerging markets. International adjusted revenues summed $145 million. Within the segment, developed markets revenues of $64 million increased 89% year over year on a reported basis and 92% on a constant-currency basis. Developed markets adjusted revenues were $80 million. Emerging markets revenues of $65 million was up 6% on a reported basis and 14% on a constant-currency basis.
Revenues at the Consumer Interactive segment improved 11% from the prior-year quarter number to $119 million, aided by strong growth in both direct and indirect channels. Notably, this included roughly $5 million of incremental credit monitoring revenues due to a breach at a competitor.
Adjusted EBITDA was $245 million, up 26% year over year on a reported and 28% on a constant-currency basis. Adjusted EBITDA margin of 39.4% expanded 40 basis points (bps) year over year. Total adjusted operating income came in at $131 million, up 19% from the year-ago quarter number on a reported basis and 15% on an organic basis.
Balance Sheet and Cash Flow
TransUnion had $226.6 million in cash and cash equivalents at the end of the third quarter compared with $192.3 million at the end of the prior quarter. Long-term debt was $4.1 billion, more or less flat with the prior-quarter figure. The company generated $178.9 million in cash from operating activities and spent $47.9 million on capex.
For the fourth quarter of 2018, TransUnion expects adjusted revenues between $620 million and $625 million, reflecting an improvement of 23-24% year over year. Adjusted EBITDA is envisioned to be in the range of $243-$246 million, mirroring an increase of 24-26%. Adjusted earnings per share, including a benefit of roughly 8 cents owing to Tax Cuts and Jobs Act, are expected between 62 cents and 63 cents, indicating a rise of 24-26% year over year. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at 64 cents.
TransUnion raised adjusted revenue, adjusted EBITDA and adjusted earnings per share guidance for 2018. It now expects adjusted revenues between $2.342 billion and $2.347 billion compared with $2.333 billion and $2.343 billion, projected earlier. Guidance increased 21% on a year-over-year basis.
Adjusted EBITDA is anticipated to be in the range of $912-$915 million compared with the earlier guidance of $904-$910 million. The projection increased 22% year over year. Adjusted earnings per share, including a benefit of roughly 31 cents from tax cuts and 2 cents headwind from unfavorable foreign exchange rates, are anticipated to be in the band of $2.46-$2.47 compared with $2.42-$2.44, guided earlier. The guidance increased 31-32% year over year.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, TransUnion has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, TransUnion has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.